Schrödinger, Inc. 10-Qquarter ended 2026-06-30

Executive Summary

Schrödinger’s Q2 revenue grew and its operating loss narrowed, but its reported profit depended chiefly on an investment gain tied to Eli Lilly’s acquisition of Ajax Therapeutics. Drug-discovery collaborations drove growth while software revenue declined as customers shifted from upfront-recognized on-premise licenses toward hosted subscriptions. Management is reducing independent clinical-development spending and seeking partners for its two Phase 1 candidates, making future returns more dependent on partner decisions. The $419M liquidity position gives the company time to execute, but investors should judge progress by software contract activity, operating cash use and repeatable collaboration revenue rather than the quarter’s GAAP profit.

Key Financial Highlights

• Revenue mix: Software products and services fell to $32.5M from $36.0M in Q2 and to $68.1M from $81.0M in H1; hosted revenue rose, but did not replace declining on-premise licenses. Drug-discovery revenue increased to $23.0M from $13.9M in Q2 and to $45.9M from $24.2M in H1, aided by a $10.0M Ajax-related milestone and collaboration timing.
• Earnings quality: Equity-investment fair-value gains were $45.9M in Q2, including a $42.1M Ajax-related gain, vs $4.58M a year earlier. H1 gains were $32.4M; neither period’s investment gains establish operating profitability.
• Cash conversion: H1 OCF of $(48.9)M vs a $(54.1)M net loss reflected non-cash investment gains and offsetting working-capital movements: receivables declined $61.7M while deferred revenue declined $41.8M. H1 capital expenditures were $2.87M.
• Dilution: H1 stock-based compensation was $17.9M. Common shares outstanding rose by 1.10M, from 64.5M at year-end to 65.6M; no shares were sold through the at-the-market program during H1.

Business Developments

Management is shifting resources away from independently funded clinical expansion. It plans to finish the Phase 1 trials of SGR-1505 and SGR-3515, seek partners for later development, and initiate no additional trials for other proprietary programs. Together with the 2025 restructuring, the reduced clinical program is expected to save $70.0M when fully implemented; the trade-off is greater reliance on partners to realize drug-program value.

The software transition is changing when sales appear as revenue: hosted subscriptions are recognized over their terms, while some multiyear on-premise contracts are recognized upfront. Q2 software annual contract value rose to $29.6M from $23.3M, a contract-activity indicator rather than GAAP revenue or a forecast. Management also introduced a predictive-toxicology solution and announced July early access for Bunsen, its agentic AI research product, with full commercial release expected by year-end.

Ajax provided $57.2M of cash, comprising $47.2M for Schrödinger’s equity stake and the $10.0M collaboration milestone. Future collaboration proceeds remain less certain: Novartis has up to $2.27B in potential milestones, but none had been recognized through 6/30/2026; BMS has one neurology target remaining after declining to advance others. Remaining performance obligations fell to $189M from $240M at year-end, with 63% expected to be recognized within 12 months.

Risk Assessment

• Operating losses and financing: H1’s $90.3M operating loss and $51.8M FCF use make the claimed liquidity runway dependent on spending discipline; future financing could dilute shareholders.
• Collaboration dependence: Partners control key advancement decisions, while milestones are contingent; target reductions at BMS and Lilly show how prospective revenue can disappear or shift.
• Software transition and concentration: Migration to hosted products depresses near-term recognized revenue, and two customers supplied 25% and 17% of Q2 revenue, increasing exposure to renewal or program changes.
• Clinical execution and safety: Neither Phase 1 candidate has an approved product, and discontinuation of SGR-2921 after serious safety events illustrates how development can end before commercialization.
• Investment valuation: Equity-investment marks materially affect GAAP results; the remaining Structure Therapeutics stake was valued at $36.5M after an H1 loss on shares held at quarter-end.
• Technology and commitments: Hosted delivery depends on third-party cloud infrastructure amid an $82.0M three-year minimum cloud commitment; outages, cyber incidents or weak adoption of new AI products could pressure returns.

Strategic Outlook and Investor Actionables

The investment case rests on converting software demand into durable hosted revenue while lowering the cost of advancing drug programs. Ajax strengthened liquidity, but its gain and milestone should not be extrapolated into recurring earnings.

• Software transition: Track hosted revenue and software annual contract value against total software revenue; sustained contract growth without eventual revenue stabilization would weaken the transition thesis.
• Cash discipline: Track H1’s $51.8M FCF use against subsequent cash use and the planned $70.0M savings; a rising burn rate would shorten the stated runway.
• Partner conversion: Track new milestones, target decisions and the $189M remaining performance obligations; recognition and partner advancement would strengthen confidence in collaboration economics.